‘Till death do us part—Undischargeable debts in bankruptcy

There are a myriad of reasons why an individual finds himself or herself underwater financially. The most common reasons that people experience a financial crisis involve losing a job due to lay-offs or being fired, or being unable to find more than a part-time job above minimum wage-even with a college degree. The how and why someone finds themselves in this position are often the asked questions, but many people fear bankruptcy for one simple reason-they do not understand or know the facts. One question that is central to any bankruptcy is whether the slate really can be wiped clean.

In a bankruptcy proceeding, at its most basic level, there are three kinds of debts: debts that are dischargeable, debts that might be dischargeable, and debts that are not dischargeable. In Connecticut, there are certain debts that cannot be discharged in either a Chapter 7 or Chapter 13 bankruptcy-giving new meaning to the phrase 'till death do us part. In a Chapter 13 bankruptcy, these debts are a part of your repayment plan, and if not totally paid, the balance is still due and owing. In a Chapter 7 bankruptcy, the discharge will not eliminate your responsibility for paying these debts.

Those debts that cannot be discharged are:

  • Child support, alimony and other debts dedicated to family support
  • Income tax debts in the past three years and all other taxes owed
  • Fines and penalties for violating the law, including restitution
  • Debts for personal injury or death caused by driving while intoxicated
  • Most student loans

The Bankruptcy Code provides that private student loan borrowers may initiate an adversary proceeding, a separate lawsuit filed within the bankruptcy case, in which they have to prove that repaying their student loan debt would be an "undue hardship." In the absence of any further guidance from the Bankruptcy Code on what constitutes an undue hardship, courts in the Second Circuit, which includes Connecticut, use what is called the Brunner test to establish whether student loan debts are dischargeable. The test has three prongs: (1) a debtor must show that, if the debtor is forced to repay his or her student loans at their current level of income and expenses, they will be unable to maintain even a minimal standard of living for themselves and their dependents, consisting of little more than food, shelter and medical insurance; (2) the debtor must show that these circumstances are permanent, or at least likely to persist for a "significant portion" of the remaining repayment period; and (3) the debtor must show that he or she has made good faith efforts to repay the loans.

Should you find yourself considering bankruptcy to crawl out from under overwhelming debt, whether that includes student loan debt or not, seek the advice of an experienced Connecticut bankruptcy attorney who can give you the facts about the bankruptcy law and can help guide you through the process.